Reacting to change in the sportswear supply chain

Changes taking place in global supply and demand are putting pressure on the apparel industry to rethink its supply chain, according to speakers at last week’s World Sports Forum. Sourcing trends, updates on emerging markets, and demographic changes likely to impact the sector in coming decades were all discussed.

The World Federation of the Sporting Goods Industry (WFSGI) hailed a record turnout at its World Sports Forum 2015 in Münich last week as it continues to ramp up efforts to help members address future challenges facing the sportswear sector.

Turning its focus on ‘Entering and exploring new markets’, this year’s event was the first organised by sourcing expert Dhyana van der Pols, who took up the newly-created role of head of textile innovation and manufacturing at the WFSGI last year.

Taking place the day before the ISPO international sporting goods fair opened its doors, Van der Pols said the industry needs to face up to the challenges and requirements of getting in to new markets. "What are the consequences of chasing cheap markets, and how is this changing? Which new markets to enter, and which consumer groups to target?," she asked.

“One of the main issues right now in the apparel industry is that people can't manage their cycle times,” van der Pols explained. “They're so short because we have a continuous flow of merchandise, and in order to have a continuous flow of merchandise we need trading partners or manufacturers who can comply with that speed to market or even co-create with us in the future.”

While sourcing nations that currently dominate the apparel market include Asia, Bangladesh, India and of course China, “most products we have in our collections can be made in various locations,” she told delegates. So the question they should be asking is “what would be my preferred sourcing destination and who would be my preferred supplier?”

It’s a question that’s easier to ask than answer. While a lot of industry attention is turning to sub-Saharan Africa, the region “has a broken supply chain,” van der Pols pointed out, noting that: “In Ethiopia we have 150 factories but if we want to produce cotton products we have to go to Tanzania to get raw material. So if we want to re-order or do a repeat, Ethiopia would not be our fastest nation.”

On top of the challenge of producing the right product in the right nation, “we also have to think about the flow of logistics and the flow of funds: if you expect something to arrive you also want it to be paid for. These are the bottlenecks where a lot of apparel brands are fighting each other.”

Assessing and rating vendors is still “mostly a matter of manufacturing cost, but it should also be about selling opportunity, replenishment opportunity, or even producing local for local,” she advised.

“Another thing has to do with clustering: which product groups am I making where? How many products do we already have in the nation? How many supplying nations do we have per product group? Is it a go-country or a no-go country? A lot of brands have a no-go policy on certain nations.”

Allied to this is a platform approach, not only for sourcing nations “but also to platform with competitors in your supply nations to see if you can cluster shipments, for example.”

Van der Pols also pointed out: “The more you diversify your product and sourcing partners the more difficult and time-consuming it will be to get your products on time in the right market.” And while a lot of companies are trying to reduce the number of regions and also reduce the suppliers per product, “this is very difficult for manufacturers.”

Since the Rana Plaza factory collapse in Bangladesh almost two years ago, the supply chain focus has moved from cost, to certification and code of conduct. “But from 2015 onwards the focus will be on co-creation in strategic partnerships and collaboration. We're running out of low-cost countries, so we have to stay put and be smart.”

Other trends, she suggested, include reducing waste and managing inventories better, keeping collections well-edited and season-less, and “trust your core products.” There’s also a move to “inverse sourcing". Rather than moving around the globe trying to shift sourcing from A to B to C, "we select suppliers based on the 'machine park' - their choice of machine, technology or software. So your potential partner is based on their choice of machine park.”

China continues to dominate
Despite these wider trends, the fact remains that just 20 countries supply 97.5% of the world’s clothing – led by China,” according to Leonie Barrie, managing editor at just-style.

While China’s current Five Year Plan stipulates an average increase of 13% per year as the country moves from production to consumption, the country still accounts for around 40-45% of world clothing production, she explained.

Other strengths include its dominance in almost all product categories, and its investment in around 70% of the world’s spinning and weaving capacity over the last decade. “No country can match China’s supply base, its skills, quality, product variety and complete supply chain - or has the capacity to absorb its production.”

Indeed, “even if only about 3% of Chinese production diversified into Myanmar, the garment sector in Myanmar would double in size,” she noted.

To further prove the point about China’s continuing dominance of the apparel industry, Barrie unveiled figures supplied exclusively for the World Sports Forum by Clothesource Tradetrak, which show the main trends in apparel sourcing last year.

Not only was China the clear winner in 2013, when it accounted for 45.9% of all apparel imports by volume into Japan, the US and EU combined – but of the 6.8% year-on-year growth in apparel imports in the first 11 months of 2014, China alone took 41%. Other winners include Vietnam, which accounted for 17.2% of the world’s apparel import growth in 2014, Bangladesh at 13.2%, India at 9.6% and Cambodia at 5.9%. Burma features at number 8 on the list with 1.8% of import growth, while Ethiopia edges in at number 27 with 1%.

It’s the same story in the EU and US. In 2013, China was in pole position with 38.8% of the volume of apparel imports into the EU – and of the 35% year-on-year growth in apparel imports in the first 11 months of 2014, China took around one-quarter of this. Bangladesh was next with 11.9%, followed by India (9.7%), Cambodia (5.9%), and Vietnam (4.3%). Both India and Vietnam are in talks with the EU on free trade agreements.

Moving on to the US, there are some similarities with the EU – but some big differences too. Again, China, Vietnam and Bangladesh are among the biggest suppliers – but China’s hold on apparel import growth is even greater than in the EU, accounting for a massive 55.7% of the growth in imports in 2014. And in perhaps one of the biggest surprises, Bangladesh doesn’t even feature on the list for US import growth in 2014. Instead, major winners include Vietnam (with 41.4% of import growth), India (9.1%), Nicaragua (5.6%), Jordan (2.8%), Dominican Republic (2.4%), Guatemala (2.3% and Kenya (2.2%).

Sourcing models
Looking to the future, Dr Sven Kromer, a partner at consultancy Kurt Salmon, noted that the market is being driven on the demand side by “a lot of changes that require us to re-think our supply chain.” These include a more demanding consumer, the growth of multichannel, more and faster information, speed of innovation, volatile demand, and increased consumer expectations regarding ecological and social standards.

Another challenge is presented by the geographical expansion of many brands and retailers. “As consumer needs differ more and more, the same consumer needs different things, and has different priorities in terms of service, price, fashionability and different 'occasions'. All require different go-to market calendars and sourcing with suppliers.

“For fashions or flash items you might have greige blocking or materials produced upfront and waiting for the sell-out information on which colours performed well, to really be able to produce at a much shorter lead time during the season.

“But what are you doing with the time that you save? What you want is to get closer to the market, and use information from the consumer, from your retail stores, your wholesale customers, to input into the product development, creative design and technical development earlier. But often that is not that case because of the lack of structured input, how to translate the data into valuable information. It's important to have a global merchandising organisation to process that information.”

Trends on the sourcing side include near-shoring, a shift in product development processes and responsibilities to suppliers in Asia “to become faster,” as well as more collaboration and information sharing.

But Dr Kromer cautioned: “I see a lot about sharing capacity planning, material blocking with the supplier, but nothing happens as there's no risk sharing. We need a different approach as to how suppliers and retailers work together, not only sharing revenues and the upside potential, but also sharing the risk.”

A key driver for all these changes is technology such as product lifecycle management (PLM) software, integrated planning tools, 3D design and printing.

“The technology will allow us to integrate very far and very fast in the future,” he said, but pointed out that: “You must make sure you share the right information at the right time with your partners so they can work effectively, rather than giving them too much information that they cannot process or do not need.”

Overall what does this mean for the future? “Sourcing models need to be more differentiated, more integrated [across different partners], more transparent down to a more detailed level from a supplier perspective, a product perspective and a consumer perspective, and technology will be a key driver for making the change to a more efficient supply chain in the future.”

Transformation in the next decade
Dr Haico Ebbers, professor of international economics at Nyenrode Business University in The Netherlands and chairman of its Europe China Institute, believes continuing globalisation will change the world dramatically in the next two decades.

“Increasing wages in emerging markets is an unstoppable process. In China the labour force is decreasing and getting older, ending the ‘demographic window of opportunity’,” he explained. In China, the median age in 2010 was 35 and in 2030 it will be 43. “That means the average wage per month is going up.”

While “you can counteract high wages by increasing productivity,” most governments believe “higher wages will create the incentive for efficiency,” he added.

On top of this, “increasing efficiency cannot be done through manufacturing, according to most governments in emerging markets. In China they see economic growth driven by consumption and investment not net exports.”

He added that by 2030, 66% of the global middle class will be in Asia, having shifted from North America and Europe. “[This will mean] new customers in a new market with a new government and new competition. We are seeing an explosion of the global middle class starting in China but also starting in other emerging markets much quicker than you would expect.”